Earlier this year, I wrote about the secret campaign by major record labels and publishers to stop the release of public domain recordings, most notably Beatles records that outsold the offerings from major label records at retail giant Wal-Mart. The campaign included extensive lobbying for an extension in the term of copyright for sound recordings. The government included the extension in the April 2015 budget, with Prime Minister Stephen Harper writing personally to the Graham Henderson of Music Canada to inform him of the change. The reforms were a gift to the recording industry, with the result that Canadian consumers now face higher prices and less choice.
Stargrove Entertainment, the company behind the public domain Beatles releases, has found that the industry is still blocking attempts to bring works in the public domain to market. As a result, this week it filed a complaint with the Canadian Competition Tribunal, claiming that major record labels such as Universal Music and Sony Music, music publishers, and CMRRA are violating Canadian competition law by refusing to deal, engaging in illegal price maintenance, and exclusive dealing. The company is seeking an order requiring the companies to provide a mechanical licence so that it can continue to produce and sell public domain records. The complaint (CT-2015-009) should be posted on the Tribunal site shortly.
The complaint tells a fascinating behind-the-scenes tale, with the recording industry doing everything in its powers – including posting false reviews and pressuring distributors – to stop the sale of competing records. The complaint notably identifies Universal Music Canada as a key player in the alleged activities, including former President Randy Lennox, who last week jumped to Bell Media.
The Stargrove complaint alleges three violations of Canadian competition law by the record labels, music publishers, and CMRRA. First, it argues a violation of refusal to deal (Section 75(1) of the Competition Act) because rights holders are denying Stargrove mechnical licences on the usual trade terms. The company notes that these licences are “normally granted as a matter of course”. The effect has been to deny the public access to competitively priced, popular recordings. Second, it argues violation of the illegal price maintenance provisions (Section 76 of the Competition Act) since the denial of licences is designed to keep Stargrove out of the market and maintain market share and higher pricing. Third, it argues a violation of exclusive dealing (Section 77 of the Competition Act), pointing to Universal’s pressure on distributors and posting of false reviews to keep Stargrove out of the market. Given these violations, Stargrove has asked the Competition Tribunal to order a stop to the violations and to enter into an agreement on standard trade terms.
While the legal issues will be played out at the Competition Tribunal, the evidence included in the application paints a picture of an industry desperate to keep low-priced, consumer friendly alternatives out of the market. Indeed, this had little to do with compensating artists (Stargrove was trying to pay the songwriters) but rather was about maintaining market and price discipline by any means possible.
The application includes evidence of the enormous popularity of the public domain Beatles records. For example, in their first week in Wal-Mart, one of the Beatles CDs was the top seller for all of Wal-Mart Canada. In the months that followed, Wal-Mart and the distributor were anxious for more releases, noting the popularity among Canadian consumers. Stargrove says it planned 45 more releases for 2016, but the industry and the Canadian government has presumably put a stop (for now) to those plans.
In response to the release, the record labels and music publishers tried to shut down the distribution chain. Several rights holders refused to grant mechanical licences, resulting in the removal of a new public domain CD from the Rolling Stones. Later CMRRA, which grants blanket licences, sought to withdraw their licence. Moreover, Universal Music Group, headed at the time by Lennox, allegedly began fabricating negative reviews of the public domain CDs on the Wal-Mart site. Terry Pursini, the President of Stargrove, says in his affidavit that a Universal Music account manager admitted creating the reviews and urged other employees to do the same. Meanwhile, Lennox allegedly wrote to the CD distributor to ask how it could partner “to resolve the public domain issue.”
In addition to the business pressures and false reviews, Universal Music began lobbying the Canadian government to change the law. The affidavit notes that the distributor advised Stargrove of the lobbying effort as early as December 2014. Despite months of advance notice, the government never publicly raised the issue or consulted with the public. In fact, in documents I obtained under Access to Information, Canadian Heritage officials admitted in February 2015 that there during the many years of copyright reform, there was no evidence of requests for sound recording copyright term extension from Music Canada or the major record labels (including Universal Music).
With the government’s sound recording term extension – completed without any public consultation and without the opportunity for anyone other than the recording industry to appear before committee – Canadian consumers will now pay higher prices for some music with less choice. The latest legal move by Stargrove offers some hope that at least existing public domain records might eventually make their way into the Canadian marketplace.